ECJ VAT C-544/24 (Nekilnojamojo turto valdymas) – AG Opinion – National law’s fixed late payment interest aligns with EU law

The ECJ issued the AG Opinion in the case C-544/24 (Nekilnojamojo turto valdymas).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Article 273 – Charter of Fundamental Rights of the European Union – Article 49(3) – Obligations deemed necessary to ensure the correct collection of VAT and to prevent evasion – National legislation providing for a procedure for applying late payment interest on VAT arrears which, irrespective of the nature and severity of the infringement, includes a set fixed penalty part with no possibility for the tax authority to reduce the amount of that penalty part – Principle of proportionality

Summary

Background of the Case: The case involves BUAB ‘Nekilnojamojo turto valdymas’ challenging the Lithuanian State Tax Inspectorate’s refusal to exempt it from late payment interest on VAT arrears and a tax fine. The Tax Disputes Commission referred questions to the Court regarding the compatibility of national legislation with EU law.
Legal Questions Raised: The court seeks clarification on whether the EU laws—specifically Article 325 TFEU and Article 273 of the VAT Directive—allow national legislation to impose fixed late payment interest without the possibility of reduction or waiver, regardless of the infringement’s nature or severity.
Principle of Proportionality: The Advocate General’s opinion emphasizes that national legislation should align with the principle of proportionality, ensuring that penalties for tax infringements are effective, dissuasive, and not excessively burdensome compared to the gravity of the offense.
Criminal Nature of Penalties: The opinion concludes that the late payment interest does not constitute a criminal penalty under Article 49(3) of the Charter of Fundamental Rights, as its primary purpose is compensatory rather than punitive. Thus, the fixed penalty structure does not violate the Charter.
Conclusion and Recommendations: The Advocate General proposes that the national law, which mandates a fixed late payment interest without the possibility of adjustment, aligns with EU law, indicating that the tax authority’s discretion is limited to uphold fairness and prevent arbitrary decisions in tax enforcement.

Facts and Background

Case C-544/24 concerns a Lithuanian company disputing the imposition of VAT late payment interest and fines, raising questions about the compatibility of national tax enforcement with EU principles on proportionality and double jeopardy.

Here’s a structured summary of the facts and background:

Case Overview

Reference: Case C-544/24 (BUAB Nekilnojamojo turto valdymas v. Lithuanian Tax Authority)
Date lodged: 12 August 2024
Referring body: Lithuanian Tax Disputes Commission
Applicant: BUAB Nekilnojamojo turto valdymas (real estate management company)
Respondent: Lithuanian State Tax Inspectorate

Tax Dispute Summary

The company was found to have improperly deducted VAT based on invalid invoices and engaged in VAT fraud between 2012–2016.
Following a tax audit, it was ordered to pay:
- €6.5 million in VAT
- €3.15 million in late payment interest
- €1.84 million in fines
The company requested exemption from the interest and fines, which was denied.

⚖️ Legal Conflict

The company is also subject to criminal proceedings for the same VAT-related conduct.
It argues that the penalty component of late payment interest violates:
- Article 50 of the Charter (ne bis in idem)
- Article 49(3) of the Charter (proportionality of penalties)
- Article 325 TFEU and Article 273 of the VAT Directive

Key Legal Questions

Can national law impose penalty-like interest for VAT infringements already subject to criminal prosecution, without coordination or safeguards?
Is a fixed penalty rate of late payment interest compatible with EU law if it cannot be reduced or waived?

Broader Implications

The case tests whether automatic, punitive interest mechanisms in tax law can coexist with criminal sanctions without breaching EU rights.
It may clarify how compensatory vs. punitive elements in tax enforcement should be distinguished and coordinated.

Questions

Are Article 325 TFEU, Article 273 of the VAT Directive ¹ and Article 50 of the Charter to be interpreted as precluding national legislation which makes it possible to impose interest on late payment of tax, a part of which has the effect of a penalty in respect of the same tax infringements which are the subject of a criminal prosecution, without laying down any rules ensuring coordination which limits to what is strictly necessary the additional disadvantage which results, for the persons concerned, from a duplication of proceedings or making it possible to ensure that the severity of all of the penalties imposed is limited to what is strictly necessary in relation to the seriousness of the offence concerned?

Are Article 325 TFEU, Article 273 of the VAT Directive and Article 49(3) of the Charter to be interpreted as precluding a procedure for applying interest on late payment of taxes which, irrespective of the nature and severity of the infringements, sets a fixed penalty part of interest on late payment of taxes, without making it possible to reduce that penalty part, that is to say, to impose a rate of late payment interest which is lower than the rate provided for by the law or to waive the penalty part of late payment interest?

AG Opinion

Article 325 TFEU and Article 273 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of Article 49(3) of the Charter of Fundamental Rights of the European Union,

must be interpreted as not precluding national legislation which, irrespective of the nature and severity of the infringement found by the tax authority, sets the amount of late payment interest without that authority being able to reduce one of the parts of that amount and thereby apply a rate of interest which is lower than the rate provided for by that legislation or waive a part of that amount and which provides that the taxpayer may be exempted from paying late payment interest only in the cases expressly defined by that legislation.

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